Uk Forex Prop Firm tax

[Middey]

Hi I am starting to trade under a prop firm and have a question about tax as it seems its a very unclear topic when it comes to forex and especially prop firms.

The agreement I have signed labels me as the customer, not a contractor and not self employed. I will be trading on a demo account so not a real account with real money.

I have had a look online and on the hmrc website there is a forum that asks this same question with the response from hmrc beingna link to what is considered betting under law.

Am I right in believing that since I am not trading a live account and am not self employed, that trading with the firm will be considered betting since I place no actual live trades?

Since why would HMRC give that specific response, the link to betting under law, if it wasn't considered so?

Thanks

 

[frugi]

It's a tedious grey area isn't it?

For what it's worth I trade with one of the modern prop firms and am registered as self-employed - specifically a financial analyst - which avoids all the complexities of "real trading" rules.

My service agreement also designates the firm as the contractor and me as the client, which does seem a bit back-to-front.

However, you, as the client, are being compensated for providing a service to them, which (at least in my case) counts as being self-employed. I expect there will be a clause in your service agreement to that effect. Whether you are treated as self-employed or not is not within the firm's remit, it is up to HMRC.

If you can get away with it counting as gambling that would be excellent, but if the only money at risk is your challenge fee (which is usually refunded anyway) I'd be surprised if HMRC would agree to that.

They only allow spread-betting and the like to be treated as gambling because as a whole losses outnumber profits so they don't want people able to claim back these losses from tax. Whereas in the case of (challenge model) prop firms, there are no losses, only potential earnings.

As ever, if unsure, a tax adviser is not a bad idea. This is only my personal experience.

 

[Middey]

From what I read in the agreement there is nothing about being self employed or anything similar, I will double check but I couldn't see anything.

They do say that the company isn't liable for tax not being disclosed, but yeah as you said its a bit of a grey area from what I can see online.

Maybe it is just best to find a tax advisor to discuss this, any recommendations?

Thanks!

 

[John Davis]

It's usually categorized as a self-employed independent contractor in the U.S.